Profit
- Reducing the concept to perceptual level roots and basic axioms/principles:
Perceptual Level Roots:
- Financial gain/surplus from economic activities
- Exchange of goods/services for money
- Difference between revenue and costs
Basic Axioms/Principles:
- Entities require resources to operate and exist
- Rational behavior aims to achieve a favorable outcome/benefit
- In a market economy, businesses must cover costs to remain viable
- Intermediate Steps/Principles:
- Businesses sell products/services to earn revenue
- They incur costs to produce/deliver these products/services
- Profit is the surplus left after costs are covered by revenue
- It provides a return/benefit to the business owners/investors
- Measurable Characteristics:
- Financial calculation: Revenue - Costs = Profit
- Quantifiable surplus monetary amount
- Positive profit indicates economic viability
- Allows growth, reinvestment, distributions to owners
- Definition:
Profit is the positive financial gain or surplus that remains after a business's total revenues from sales exceed its total costs of operation and production over a given period.
Genus: Financial surplus
Differentia: From economic/business activities after covering all costs
The criteria for an objective definition are met by grounding it in perceptual facts, adhering to basic economic principles, identifying measurable characteristics, and providing an essential definition in terms of genus and differentia.
This definition is reasonably general and universal in the context of businesses operating to generate economic surplus/gains in a market economy.
Next:
To expand further on the objective definition of profit:
Additional Perceptual Level Roots:
- Ownership/property rights over productive assets
- Scarcity of resources requiring efficient allocation
- Pricing mechanisms in markets
Additional Basic Axioms/Principles:
- Private property rights incentivize productive use of resources
- Profits are a signal of efficiently meeting market demand
- Time preference - profits enable savings/investment for future
More Intermediate Steps/Principles:
- Businesses employ capital, labor to create valuable goods/services
- They try to minimize costs through efficient operations
- Market competition rewards businesses with highest value at lowest cost
- Retained profits can fund expansion, innovation, create more wealth
Additional Measurable Characteristics:
- Profit margins - profits as a percentage of revenues
- Return on investment/equity - profitability ratios
- Profit growth rates over time periods
- Variance in profitability across firms/industries
Expanded Definition:
Profit is the positive monetary residual earned by a business entity that is left after deducting all the associated expenses and costs involved in carrying out production, operations, and delivering goods or services to customers at a price valued by them in a market economy based on private property rights over scarce resources.
Genus: Positive financial residual surplus
Differentia: From market-based economic activities using private property rights over resources after covering all associated costs and expenses
This expanded objective definition covers more foundational aspects related to property rights, markets, incentives, and wealth creation facilitated by profits. It aims to be more comprehensive while still being perceptually grounded and adhering to economic principles.
Finally:
Expanding even further on the objective definition of profit:
Additional Perceptual Roots:
Human actions/choices to pursue valued ends
- Exchange/trade of property titles between consenting parties
- Observable pricing data reflecting market valuations
Additional Axioms/Principles:
- Human beings act purposefully to achieve goals/ends
- Private property enables separation of ownership/control
- Markets coordinate dispersed knowledge through price signals
More Intermediate Steps:
- Entrepreneurs forecast future demands, allocate resources accordingly
- Revenues reflect sum of individual subjective valuations by buyers
- Profits are an appraised value judgment by market on resource use
- Losses signal a need to revise/reallocate resources more efficiently
Additional Measurable Characteristics:
- Accounting metrics like net income, EBITDA, free cash flows
- Risk-adjusted rates of return/profitability
- Economic/opportunity costs in addition to accounting costs
- Variability of profits over business/market cycles
Most Comprehensive Definition:
Profit is the ultimately positive monetary differential and residual surplus realized by an entrepreneurial business entity employing scarce capital resources and labor through market-based exchange over a defined time period. It represents the sum of individually subjective valuations by consumers for the goods/services provided, relative to the appraisal of opportunity costs involved in that particular factor allocation and use, as manifested through dynamic price signals tending toward more efficient resource utilization across the entire market economy based on private property rights.
Genus: Positive appraised value differential
Differentia: From purposeful entrepreneurial resource use guided by market pricing/valuation processes within a private property rights-based economy
This tries to incorporate insights from Austrian economics on subjective value theory, entrepreneurship, economic calculation, and dynamic market processes.
The key criteria for an objective definition are still met - grounding in perceptual facts, logical consistency with economic principles, measurable characteristics, and a formulation capturing the essential nature of the concept.
I've attempted to expand the definition iteratively while maintaining objectivity and validity based on rational inquiry into the foundations of profit and market economies.
Marx's theory of exploitation
Karl Marx's theory of exploitation is a central concept in his critique of capitalist economies. According to Marx, exploitation occurs when workers do not receive the full value of their labor. Instead, the surplus value created by their labor is appropriated by capitalists, who own the means of production. This process is fundamental to the functioning of capitalist economies and results in a systematic transfer of value from workers to capitalists.
BUT, Marx's theory of exploitation has the wrong definition of profit. It's definition of profit is: profit = value of what workers produce (what workers should be paid) - what workers are actually paid.
AND, this definition of profit is problematic and invalid from an objective standpoint for the following reasons:
- Perceptual/Factual Errors:
- It treats "value" as an objective, intrinsic property rather than subjective valuations by individuals
- It assumes workers alone "produce" value, ignoring other factors like capital, entrepreneurship, etc.
- It equates market prices/values solely to amounts "paid" to workers
- Violates Basic Economic Principles:
- Denies subjective value theory - value is imputed by individuals, not objectively determined
- Contradicts marginality principle - value derives from ends/goals satisfied, not just physical inputs
- Ignores time preference, interest, uncertainty in production over time
- Treats capital goods as automatically valuable rather than valued for their usefulness
- Lacks Validity Testing:
- Provides no operational way to quantitatively measure "value produced" by any worker
- Ignores opportunity costs faced by entrepreneurs in employing workers/resources
- Does not correspond to real-world accounting measures of revenue, costs, profit
- Definitional Inconsistencies:
- Verbal formula contradicts essence of profit as positive surplus/residual
- Could logically result in "negative profits" which is a contradiction in terms
- No clear delineation of the entities, activities included in "what workers produce"
In essence, this Marx/labor theory of value-inspired definition rests on unproven subjective assertions, factual errors, disregard for economic laws, and inherent logical contradictions when scrutinized objectively. It fails to meet the criteria for a valid, reality-based definition of the profit concept integrated with broader economic principles.
AND:
To further expand on why the stated definition of "profit = value of what workers produce - what workers are actually paid" is invalid from an objective perspective:
Perceptual Flaws:
- Treats "value" as an intrinsic property rather than subjective valuations by individuals in the context of specific ends/goals
- Assumes all "production" value comes solely from workers' labor input, ignoring capital equipment, land, intellectual property etc.
- Equates market prices to being solely determined by worker compensation levels, disregarding other cost factors
Contradicts Basic Axioms:
- Denies the axiom of human beings acting purposefully to attain valued ends/goals as the basis of economic behavior
- Violates the axiom that individuals have different subjective value preferences/valuations
- Disregards the axiom of scarcity of resources requiring economic calculation for efficient allocation
Faulty Intermediate Principles:
- Implies value can be objectively calculated from physical inputs like labor hours worked
- Asserts that market prices are just an embodied representation of "value produced" by labor
- Assumes entrepreneurs/capitalists automatically extract an exploitative differential from worker value
Lack of Measurable Characteristics:
- Provides no empirical way to measure or quantify the "value produced" by any specific worker(s)
- Cannot be reconciled with standard accounting measures of revenue, costs, profit used in business
- Does not account for variability of profits across firms, industries, time periods based on market realities
Definitional Defects:
- Formulation contradicts the essential nature of profit as a positive surplus/residual
- Admits "negative profits" which is a logical/verbal contradiction
- No clear delineation of specific entities/boundaries for "what workers produce"
This supposed "definition" rests on a series of unchallenged assertions, subjective judgments passed as objective facts, and many logical fallacies. It stems from the roots of the flawed Marxian exploitation theory and labor theory of value.
In contrast, an objective definition must be:
- Grounded in empirical perceptual facts and valid economic principles
- Logically consistent and free of contradictions
- Have clear delineations and measurable characteristics
- Coherently capture the essential nature of the concept
The stated "definition" being critiqued fails to meet any of these key criteria for an objective, reality-based definition of the profit concept when scrutinized rationally. It rests on fundamentally flawed philosophical and economic foundations.
Finally:
In continuing to analyze the supposed "definition" of "profit = value of what workers produce - what workers are actually paid" through the lens of objectivity and reason based on facts of reality, some additional flaws become apparent when scrutinized philosophically:
Anti-Conceptual Mistakes:
- Illicitly conflates and package-deals distinct concepts like "value," "production," "worker," etc. into an over-condensed formula
- Tries to treat complex economic phenomena involving multiple entities and factors as a simple mathematical operation
- Displays a mind-body dichotomy by focusing solely on physical "labor" while disregarding mental forms of production
Stolen Concepts/Circular Arguments:
- Implicitly relies on valid economic concepts like property rights, exchange, money, etc. which it cannot objectively justify
- Any attempt to define "value," "produce," "paid," etc. must fall back circularly on the invalid "definition" or other unproven assertions
- Fails to validate its foundational concepts while purporting to define a derivative higher-level concept
Intrinsic/Subjective Blending:
- Treats "value" as both intrinsic (just objectively "produced") and subjective (differential compensation "paid")
- Asserts both an intrinsic theory of value (worker inputs) and subjective value theory (market prices) simultaneously
- Cannot delineate objectively at what point "production" ends and subjective valuation begins
Logical Contradictions:
- Direct contradiction in terms like "negative profits" being treated coherently
- Equivocates wealth creation (producing value) and wealth deprivation (subjective exploitation)
- Cannot validly integrate derived/objective elements with normative/ethical premises about "deserved value"
The core root error is treating economic phenomena involving human actions, subjective valuations, market dynamics etc. in a naively simplistic physical/intrinsic manner divorced from deeper philosophy of metaphysics, epistemology, ethics, etc. It fails to begin with an objectively valid foundational axioms and integrate concepts consistently.
Proper conceptual analysis reveals this "definition" commits numerous logical fallacies, disregards the mind-matter connection, suffers from circularity, imprecise definitions, contradictions, intrinsicism-subjectivism crossover errors, and outright stolen/unearned conceptual borrowings.
Any supposedly "objective" definition, especially in the realm of human philosophy and economics, must start with validated axioms, adhere to objective conceptual commonsense epistemology, and derive further knowledge through reason while avoiding all types of irredeemable cognitive mistakes. This clearly illustrates why the provided statement fails as an objective definition of profit.
